UP and CN CEOs Outline New Railroad Agreements

Strategic Agreements Between Union Pacific and Canadian National Railroads

Union Pacific (UP) and Canadian National (CN) have reached significant agreements that are set to reshape their operations and expand their market reach. These deals, which were announced this week, offer CN improved access to Mexico and the Midwest while providing UP with a congestion-free route around Chicago. Both companies have been vocal about the long-term benefits of these arrangements, highlighting their strategic importance for future growth.

The discussions leading up to these agreements were influenced by the proposed merger between Union Pacific and Norfolk Southern. While the first agreement is not dependent on regulatory approval of the UP-NS merger, the second one is contingent upon it. This dual approach allows both railroads to secure advantages regardless of the merger's fate.

First Agreement: Enhancing Network Access

The first agreement grants CN haulage rights on UP from Memphis to Eagle Pass, Texas, allowing it to interchange with Ferromex. In return, UP will be able to use CN’s former Elgin, Joliet & Eastern (EJ&E) Chicago bypass to interchange with Eastern railroads. This arrangement is designed to provide CN with direct and competitive access to key markets in Kansas City and Mexico, as well as increase the density of its U.S. network where there is currently available capacity.

CN will handle Mexico traffic under haulage rights, but these can be converted to trackage rights if needed based on volume. The cross-border traffic will be jointly marketed by CN and Ferromex, targeting both existing rail markets and the expansive truck market between Mexico and Canada.

CN’s Chief Commercial Officer, Janet Drysdale, emphasized the broad-based nature of the Canada-Mexico traffic opportunity, which includes intermodal, automotive, agricultural products, energy-related commodities, and chemicals.

Second Agreement: Mitigating Competitive Concerns

The second deal, a settlement agreement, is subject to Surface Transportation Board (STB) approval and hinges on the UP-NS merger. Under this agreement, CN would gain access to shipper facilities where Class I railroad options would be reduced from 2-to-1 or 3-to-2, provided it is commercially and operationally feasible. CN would also acquire NS ownership interests in the Kansas City Terminal Railway and the Terminal Railroad Association of St. Louis, ensuring that an expanded UP does not gain majority control over the terminal railroads.

Additionally, CN would gain new access in the Midwest through overhead rights between Tuscola, Ill., and East St. Louis, Ill., and rights to serve customers between St. Louis and Kansas City via UP. This marks the first time CN will have a footprint in Kansas City, with access to UP's Neff Yard.

In exchange, CN will drop its opposition to the merger. Tracy Robinson, CN’s CEO, noted that the agreement addresses concerns about the merger's impact on CN’s network, business, and customers, while also extending CN’s reach into broader markets.

Operational Details and Future Plans

Both railroads are working out the operational details of the commercial agreement and aim to launch it as soon as possible this year. The agreement does not require STB review.

Patrick Whitehead, CN’s Chief Operating Officer, mentioned that a new connection from the former Illinois Central main line to the UP main at Tuscola, Ill., will need to be built. Initially, UP will handle the traffic for CN, but as volume grows, CN will begin using trackage rights over UP’s former Missouri Pacific route between St. Louis and Kansas City. CN ultimately has the right to buy the route as well as Neff Yard.

The agreement also helps eliminate route duplication for UP, which would have had the former MP route and Norfolk Southern's former Wabash across Missouri if the merger is approved. Having another operator for the former MP was part of the plan to reduce redundancy, according to Vena.

Conclusion

These agreements represent a major shift in the landscape of North American railroading, offering both Union Pacific and Canadian National the flexibility and access they need to thrive in an evolving market. As the details of these deals come to fruition, the rail industry will be watching closely to see how these changes affect competition, efficiency, and customer service across the continent.

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